World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Tuesday, December 1, 2009

This paper was written before Thanksgiving and a handwritten note from Martin to Kris (who publishes his papers on Scribd), tells her of his learning that he was to be transferred. Thank goodness we stopped that. I now understand that he has written a thank-you note to all of us for helping as he is most appreciative… I’ll post that once I get it.

In this paper, Martin lays out his case that Depressions are complex beasts that you cannot measure just in stock market movement. He correctly points out that equity markets tend to recover long before the real economy, and his prediction is that we will go on to see new overall highs in our markets and that 2007 was not the final high in this bull market.

That one statement opposes the Elliott Wave experts I follow, I’ll just leave that there. While Martin talks about the complexities of international trade, he does not tell us what even the largest considerations are and thus we are left to guess at what he means. He is absolutely correct that there are many myths such as interest rates going down means stocks go up, etc. As he has pointed out before, it is the flow of capital that one must consider. For example, as interest rates rise, money flows away from bonds and will wind up going somewhere else in the short term, that somewhere can be equities.

What leaves me somewhat empty from this conversation is the role that debt and our current money system play in it. Our money now comes into existence as a debt bearing instrument. We had more than two times the per capita debt as compared to the Great Depression going into this one, and that ratio is not substantially improving, while governmental debt is in an exponential growth phase. We also now have a shadow banking world and terrible statistics to consider. While I can see monetizing forcing the price of equities higher, the prospect of creating enough money along with the accompanying debt sounds daunting to say the least. He talks of how a new money system shifted a cycle, well, I see a new system coming as the current one is not mathematically destined to remain much longer. That is not opinion, I can prove the math at least 3 different ways. No currency has been invented yet that repeals the laws of math.

I enjoy Martin’s writing for the mental processes it creates, and hope you will use it to strengthen your conceptual base… By the way, I would love to see some real science done on the economy as Martin suggests, I do believe that certain modeling is possible and would be very beneficial to our conceptual understanding.